CPAR

CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

MANAGEMENT ADVISORY SERVICES MAY 5, 2022

PREWEEK MATERIAL

1. Dynamite Co. is reviewing the following data relating to an energy saving

investment proposal: let ✗ = annual savings
Cost P50,000 3.60×1-10000×-57=50000

INFLOW Residual value at the end of 5 years 10,000

CASH 3-60 ✗ =50k -5700

=
Present value of an annuity of 1 at 12% for 5 years 3.60 3.box 44300
=

✗ 12306
Present value of 1 due in 5 years at 12% 0.57
=

annual savings

Lsu What would be the annual savings needed to make the investment realize a
12% yield?

I
Prof -_
cost " ← *r=_
CF Investment a. P 8,189 0c. P12,306
NPV=∅ b. P11,111 d. P13,889

ITEMS 2 TO 4 ARE BASED ON THE FOLLOWING INFORMATION:

BTS, a computer disk storage and back up company, uses accrual accounting. The

BTS
Statement of Financial Position
November 30

Assets Equity
Cash P 52,000 Accounts payable P 175,000
Accounts receivable, net 150,000 Common stock 900,000
Inventory 315,000 Retained earnings 442,000
Property, plant & eqpmnt. 1,000,000 Total liabilities
Total assets P1,517,000 and SE P1,517,000

Additional information regarding BTS includes the following:

Sales are budgeted at P520,000 for December and P500,000 for

ÉIÉ
January of the next year.
Collections are expected to be-0
60% in the month of sale andO
-
40% in
the month following the sale.
Eighty percent of the disk drive components are purchased in the
0
month prior to the month of sale, and 20% are purchased in the month
of sale. Purchased components are 40% of the cost of goods sold.
Payment for the components is made in the month following the
purchase.
-0
Cost of goods sold is 80% of sales.
-
 MANAGEMENT ADVISORY SERVICES BATCH 91
PREWEEK MATERIAL Page 2 of 25

520kx.tw?%f0w----i:;: : :.:.
NOV 150K 150000
2. BTS
.

Dec
a. P462,000 c. P520,000
- .

b. P402,000 d. P208,000
Dec . Jan ,

Sales 500K tobepd

3. BTS 520k
.

next mo .

a. P201,600 c. P166,400 Punch -401 . 166400 160000 T . Parch .

b. P416,000 d. P161,280
3%-7%4=161280
Dec .

4. BTS - s 520k
0
-

a. P0 c. P104,000 cos 4161<-80-1 .

b. P536,000 d. P416,000 104k

GP 201 .

5. An individual receives an income of P3,000 per month, and spends P2,500.

ECONOMICS 3000 3500
An increase in income of P500 per month occurs, and the individual spends spending
- complementary →
MP to consume =D consumption _
P2,800. The _-
-

}%-;÷
savings
or
a. 0.20 c. 0.60
3% :O .tw
b. 0.40 d. 0.80
→
MPtosane-f-SIY-iyf-o.co
ITEMS 6 TO 9 ARE BASED ON THE FOLLOWING INFORMATION:

An organization has four investment proposals with the following costs and
expected cash inflows:
Expected Cash Inflows
Project Cost End of End of End of
year 1 year 2 year 3
A Unknown P10,000 P10,000 P10,000
B P20,000 5,000 10,000 15,000
C 25,000 15,000 10,000 5,000
D 30,000 20,000 Unknown 20,000

NOTE: round present value factors to four (4) decimal places.

6. If Project A has an internal rate of return (IRR) of 15%, then it has a cost of
- _

a. P 8,696 c. P24,869 -10000×2.2832

b. P22,832 d. P27,232 22832 =

7. If the discount rate is 10%, the net present value (NPV) of Project B is
- _ - 5k ✗ < 9091 = 4545.50
a. P 4,079 c. P 9,869 10k ✗ -8264 = 8264
b. P 6,789 d. P39,204 15k ✗ 7513 = 11269.5£
•

PV of Clintons 24079

8. The payback period of Project C is cost of invest

2048%
.

""
a. 0 years. ①
c. 2 years. 9115k
ya 10K
> 25k
b. 1 year. d. 3 years.

9. If the discount rate is 5% and the discounted payback period of Project D is

exactly two years, then the year two cash inflow for Project D is
-
-

a. P 5,890 c. P12,075
b. P10,000 d. P14,301 yr
1 20k × -9524 = 19048
'

2120752<-9070--1-0952/1 30000
 MANAGEMENT ADVISORY SERVICES BATCH 91
PREWEEK MATERIAL Page 3 of 25

ACTIVITY BASED 10. Roger Corporation accumulated the following cost information for its two
COSTING products, A and B:
A B Total
Production volume 2,000 1,000
Total direct man. labor hrs. 5,000 20,000 25,000
Setup cost per batch P 1,000 P 2,000
Batch size 100 50
Total setup costs incurred P20,000 P40,000 P60,000
DMLH per unit 2 1

A traditional costing system would allocate setup costs on the basis of DMLH.
An ABC system would trace costs by spreading the costs per batch over the
units in a batch. What is the setup cost per unit of product A under each
costing system?
Traditional ABC
a. P4.80 P10.00
SETUP lost
PERDMLH
¥%÷zDMÑ
b. P2.40 P10.00 = 214 / DMLH
c. P40.00 P200.00 A
É%ⁿHu
-

d. P4.80 P20.00
sales 53000
11. Ming Co. is budgeting sales of 53,000 units of product A for October 2023.

:÷÷÷
FGBI
-

S The manufacture of one unit of A requires four kilos of chemical Loire. During
ᵈa÷ El + ↑ T units 59000
October 2023, Ming plans to reduce the inventory of Loire by 50,000 kilos
+
.

"'"
"

÷ :
:÷-÷ and increase the finished goods inventory of A by 6,000 units. There is no A
work in process inventory. How many kilos of Loire is Ming budgeting to .

( 50k)
purchase in October 2023? ↓EI

a. 138,000 c. 186,000 ① T Kilos

. needed -186000

b. 162,000 d. 238,000

12. A company produces and sells two products. The first product accounts for
SALES MIX 75% of sales and the second product accounts for the remaining☐ 25% of
sales. The first product has a selling price of P10 per unit, variable costs of
P6 per unit, and allocated fixed costs of P100,000. The← second product has
-
-

a selling price of P25 per unit, variable costs of P13 per unit, and allocated
fixed costs of P212,000. At the breakeven point, what number of units of the

#
first product will have been sold?
a. 52,000 c. 25,000
b. 39,000 d. 14,625

product 1 2 FXC

SmxRatio 75% 25% 100000

:::-
Smx Units 3 I
✗ [
cmlu
÷ YT :
2414--6

312,0C =gzoooft5%
M✗BEPu = 3900
=
25% 13000
ALTERNATIVE :

39000
-3
3122¥
"
:[ zoo
11 13000
 MANAGEMENT ADVISORY SERVICES BATCH 91
PREWEEK MATERIAL Page 4 of 25

13. The following information is available on Craig Co.'s two product lines:

Chairs Tables Rental Income 24000

Sales P180,000 P 48,000 Avoidable Fxc 12000
Variable costs (96,000) (30,000) "a"

:[
Contribution margin 84,000 18,000 36000
benefit
Fixed costs: (Isom )
lost CM
Avoidable (36,000) (12,000) inopportunity
Irrelevant Unavoidable (18,000) (10,800) 18000
NET BENEFIT
Operating income (loss) P 30,000 (P4,800)
Tiny
Assuming the tables line is discontinued, and the factory space previously

¥
used to make tables is rented
-
for P24,000 per year, operating income will
increase by what amount?

←
a. 13,200 c. P24,000
b. P18,000 d. P28,800

14. Red C)
P780,000. Variable expenses averaged 60% CMR 40-1 .

of sales, and the margin of safety was P130,000. What was Red
contribution margin? Mos S BES -_ -

1301<=9 -780k
①a. P 364,000 c. P 910,000
5=910000
b. P 546,000 d. P1,300,000
cm
56¥
ITEMS 15 TO 17 ARE BASED ON THE FOLLOWING INFORMATION:
SPECIAL
ORDER Jiam Company produces a single product. The cost of producing and selling
-

a single unit of this product at the company's normal activity level of 40,000
-
units per month is as follows:
Normal
Direct materials P38.80 Vcfu
150.801-1.70=52.50
" "s
Direct labor VC 9.70
Variable manufacturing overhead 2.30 10.201
Fixed manufacturing overhead 18.10
52.30 v4u%%t
Variable selling & administrative expense 1.70
Fixed selling & administrative expense 8.80

The normal selling price of the product is P81.10 per unit.

An order has been received from an overseas customer for 3,000 units to be
delivered this month at a special discounted price. This order would have no
effect on the company's normal sales and would not change the total amount
of the company's fixed costs. The variable selling and administrative expense
would be P0.20 less per unit on this order than on normal sales.

Direct
-
labor is a variable cost in this company.

15. Suppose the company has ample idle capacity to produce the units required SPECIAL ORDER

by the overseas customer - -

and the special discounted price on the special SPIN 75.30

V44 52-30

Cmlu -23
units 3000
+ Net #
 MANAGEMENT ADVISORY SERVICES BATCH 91
PREWEEK MATERIAL Page 5 of 25

order is P75.30 per unit. By how much would this special order increase
(decrease) the company's net operating income for the month?
a. P69,000 c. (P17,400)
b. P68,400 d. P86,400
NORMAL SALE
16. Suppose the company is already operating at capacity when the special order
81-10
is received from the overseas customer. What would be the=opportunity cost SP

a. P81.10
b. P75.30
#
of each unit delivered to the overseas customer?
c. P28.60
d. P28.80
v0

car.
↳ opportunity cost
:*
MIN . ACCEPTABLE PRICE
17. Suppose the company does not have enough idle capacity to produce all of

÷:÷::÷
the units for the overseas customer and accepting the special order would Displaced NS II. -

require cutting back on production of 1,000 units for regular customers. Lost CM DS 28600 -

special
What would be the minimum acceptable price per unit for the special order? TVC order
-

159600
a. P75.30 c. P52.30
b. P52.50 d. P61.83 units Stormer
.

ACCEPT pria=%%É
-

MIN . .

ABSORPTION 18. A manufacturing company employs variable costing for internal reporting
& and analysis purposes. However, it converts its records to absorption costing
for external reporting. The accounting department always reconciles the
VARIABLE
two operating income figures to assure that no errors have occurred in the
COSTING conversion. Financial data for the year are presented below. The fixed
manufacturing overhead cost per unit was based on the planned level of
-

-
-

production of 480,000 units.

-

- -

AY = Ahwty . ✗ FOH /u
Budgeted and Actual Levels for Sales and Production prod 'n
-
sates
Budget Actual
500k
Sales (in units) 495,000 510,000 -

510k
Production (in units) 480,000 500,000
Thx 6
P < s → ✓ Ay
Standard Unit Manufacturing Costs Ay = 60000

Variable Absorption
Costing Costing
Variable costs P10.00 P10.00
Fixed manufacturing overhead 0 6.00
Total unit manufacturing costs P10.00 P16.00

The difference between variable costing and absorption costing operating

- -

=
profit is

÷-
a. P120,000 c. P60,000
b. P 90,000 d. P57,600

FLEXIBLE 19. -line depreciation on factory

equipment of P258,000. The master budget was prepared at an annual
BUDGET production volume of 103,200 units of product. This production volume is
-

cost/month
Dep .

21500
258000/12
 MANAGEMENT ADVISORY SERVICES BATCH 91
PREWEEK MATERIAL Page 6 of 25

expected to occur uniformly throughout the year. During September, Sim

É
produced 8,170 units of product, and the accounts reflected actual
depreciation on factory machinery of P20,500. Sim controls manufacturing
=
costs with a flexible budget. The flexible budget amount for depreciation on
-

factory machinery for September should be:

a. P20,500 c. P19,875
b. P21,500 d. P20,425

20. Marge, Inc., ends the month with a volume variance of P6,360 unfavorable.

÷_¥
FXOH
If budgeted fixed factory overhead was P480,000, overhead was applied on
the basis of 32,000 budgeted machine hours, and budgeted variable factory BFX 480k
A¥¥× > Fxspehd
qq.gg#6360uSFx7V0lnmevar
.
overhead was P170,000, what were the standard machine hours allowed
↓
a. 31,687 c. 32,424
483%7=15×31576 SH
0
b. 31,576 d. 32,000

21. The following selected data pertain to the Weh Division of Beatle Co. for the
year just ended: Actual meome 40000
Sales P400,000 Desired become
Operating income 40,000
400k Sales
Asset "m°← Capital turnover
=
4 40¥ look ✗ 10%101 __

look =
-4
=
As-is pompom INCOME 30000
Imputed interest rate 10%
= Actual -
Desired income

0
a. P30,000 c. P4,000
-

b. P10,000 d. P0

ITEMS 22 TO 25 ARE BASED ON THE FOLLOWING INFORMATION:

ABC
Cinna Corporation manufactures one product. Its total fixed costs calculated
CVP 300000
according to traditional cost-volume-profit (CVP) analysis and activity-based-
-

ABC tooooo
costing (ABC) equal P300,000 and P100,000 respectively. Unit selling price
omlu so is P40, and unit-based variable cost per unit is P20. In addition, total cost
also varies with one batch-level and one product-level driver. Relevant
-

" win =% information about non-unit based drivers includes the following:
-

Batch-Level Driver Product-Level Driver

Cost per driver P2,000 P60
Quantity of driver 40 2,000

22. According to traditional CVP analysis, how many units must be sold to
Jupp 3004%-30733%5=16500
generate operating income of P30,000? =
a. 21,500 c. 6,500

±
b. 16,500 d. 5,000

23. According to ABC analysis, how many units must be sold to generate
- -

operating income of P30,000? Fxcost 100000

a. 16,500 c. 12,500 Non unit based
cost -

b. 15,000 d. 10,500 batch level

level
soooo
noooo
product
profit
TOTAL
%o÷
cmlu 40-20
NO OF UNITS
-
÷%÷
 MANAGEMENT ADVISORY SERVICES BATCH 91
PREWEEK MATERIAL Page 7 of 25

24. -based
5 to P16. If-
variable cost per unit is reduced
-

=
fixed costs are assumed to remain
at P300,000 and operating income of P30,000 is desired, how many units
=
a. 16,500
#
must be sold according to traditional CVP analysis?
c. 12,500 7304%3,01=3%41--13750
0b. 13,750 d. 11,250

25. Assume that an ABC analysis of the effects of the redesign of the product FXC 100000

___-
mentioned in the fact pattern unexpectedly revealed an increase in the Batch 2400×40 96000
batch-level cost per driver to P2,400 and in the quantity of the product-level g§ Product 2600×60 156000
-

driver to 2,600. According to ABC analysis, how many units must be sold to profit
30000
total %
generate operating income of P30,000 if fixed costs are unchanged? ÷ CM /u 40-16 24
a. 16,500 c. 13,750
-

UNITS 15-917
0b. 15,917 d. 13,167

26. The market price per share of PE Co. on January 1, 2022 was P60, and on
PRICE EARNINGS RATIO

_¥¥¥n.ae#-----
December 31, 2022 was P72. Net income for 2022 was P48,000. Dividends
* Ratio to the preference shareholders for the year totaled P12,000, and dividends
of P2.50 per share were paid on the 6,000 ordinary shares outstanding

#
during the year. The price-earnings ratio for PE Co. at year end was
-72=-6--12
= 72
a. 10 to 1 c. 11 to 1
48k
-12146¢ b. 6 to 1 d. 12 to 1

Credit sales
27.
ARTO

#
=

ATAR
=
P480,000 on December 31, 2022. Cash sales during 2022 were P175,000.
=
,¥É=ÉÉ
' =
for 2022 were
a. P3,150,000 c. P2,275,000
Sales = 2275k 1- 175k ①b. P2,450,000 d. P2,575,000
= 2450000
ITEMS 28 and 29 ARE BASED ON THE FOLLOWING INFORMATION:

Mickey is a distributor of picture frames. For 2022, she plans to purchase

" =
P240,000. Her only other costs are variable costs of P60 per shipment for
preparing the invoice and delivery documents, organizing the delivery, and
following up for collecting accounts receivable. The P60 cost is incurred each
time Mickey ships an order of picture frames, regardless of the number of
frames in the order.
-

28. Suppose Mickey sells 40,000 picture frames in 1,000 shipments in 2022,

0
a. P300,000 c. P240,000
b. P420,000 d. P450,000

Sale 4012×45 I -8M

Costs :
1.2M
Punch ¢0k✗30
.

60×1000 60k
Ship
HM_(¥Iom
.

Fxcost
PROFIT
 MANAGEMENT ADVISORY SERVICES BATCH 91 BEPu=€×
PREWEEK MATERIAL Page 8 of 25
24012+(500×60)
=

29. Suppose Mickey anticipates making 500 shipments in 2022. How many #
picture frames must Mickey sell to break even in 2022?

[ ,,÷,, µ
27¥
=
= 18000
a. 18,000 c. 14,000
b. 12,000 d. 16,000
MS = S -
BES
30. The Beng Company manufactures and sells a specialty perfume. The MSR 20%
company budgets a margin of safety of @ 20% for_- 2023. Fixed costs are BESR 801 . = "¥
-

budgeted
-
at P270,000 annually. Variable
-
costs are P6.60 per ml. If the sales _
• i.
=¥%÷
price per ml is P12, the budgeted level of sales revenue for 2023 is
a. P589,330 c. P480,000 ,
b. P720,000 d. P750,000
↳"
5¥
31. Anja Company can acquire a P700,000 machine now that will benefit the

=
firm over the next 5 years. A newly hired staff assistant correctly computed
the net present value to be P134,020 by using a 10% hurdle rate. On the
basis of this information, the machine was expected to produce annual cash
-

operating savings of approximately: cost of hrvestinent 700000

a. P166,804. c. P268,605. + NPV

TOTAL PVOFCI 1g}¥÷
b. P220,000. d. P834,020. ÷ Pvfactor
ANNUAL CASH SAVINGS
27k¥
32. The following information is available for the Wholesale Products Division of
ECONOMIC Seth Corporation:
VALUE ADDED Operating profit before interest and taxes P30,000,000 EVA -430M ✗ 60%) -

tax income Depreciation expense 10,000,000

=
Actual after
on invested Change in working capital 5,000,000
¢0M ✗ to %)
-

capital charge
capital Capital expenditures 4,000,000 18M -5M
=

Curated wA%¥¥ai
capital ✗ ) Invested capital (total assets current liabilities) 50,000,000 13m
=

MA U
Weighted average cost of capital 10%
-

"
t
"
✓ wealth
= Tax rate 40%

What is the amount of economic value added (EVA) for the division?
-

=
a. P30,000,000 c. P25,000,000
◦b. P13,000,000 d. P 5,000,000

33. Kyle Enterprises, which has three departments, recently reported the
following results:
A B C
Sales revenue P12,000 12% P 48,000 48% P 40,000 40%100000
Less operating costs 11,400 59,800 50,500
Operating income (loss) P 600 P(11,800) P(10,500)

The company incurred variable operating costs as well as P25,000 of

fixed operating costs. The P25,000 amount was allocated to A, B, and
C on the basis of sales revenue and is included in the cost figures
noted above. Which department(s), if any, should be closed if none
of the fixed operating costs can be avoided?
-
Fxc -
Unavoidable
a. Department A. -
Irrelevant
b. Department B.
A B C 25000
g 12h 48k 40k 42-1 . 3,000
00

OI
-1¥
;÷%-ÉTo¥E%4¥ 48%12.000
[ 40%10,000
 MANAGEMENT ADVISORY SERVICES BATCH 91
PREWEEK MATERIAL Page 9 of 25

°-
c. Department C.
d. Departments B and C.
at
34. The projected sales price for a new product (which is still in the development + too

O_O
_

stage of the product life cycle) is P100. The company has estimated the life- f- profit (24)
@
-

=
cycle cost to be P60 and the first-year cost to be P120. On this type of
taste
product, the company requires a P24 per unit profit. What is the target cost
-

of the new product?

-

a. P60 c. P842
◦b. P76 d. P120

35. The following information applies to Labs Inc., which supplies microscopes
to laboratories throughout the country. Labs Inc. purchases the microscopes
from a manufacturer which has a reputation for very high quality in its
manufacturing operation.

Annual demand (weekly demand=1/52 of annual demand) 20,800 units 4000 / week
Orders per year 20
plaaiggder - receiving
order
< -
Lead time in days 15 days
Cost of placing an order P100
REORDER lead ✗
AM.

What is the reorder point?

=
POINT time usage
a. 1,040 units c. 1,560 units = b- days ✗
4¥
①b. 857 units d. 2,080 units = 857.1
↳ SUNK lost
36. Arthur, Inc., has P125,000 of inventory that suffered minor smoke 45000
sell asis
damage from a fire in the warehouse. The company = can sell the
goods "as is" for P45,000; alternatively, the goods can be cleaned clean -480k
,
,,
and shipped to the firm's outlet center at a cost of P23,000. There µ, ,µ better
the goods could be sold for P80,000. What alternative is more
desirable and what is the relevant cost for that alternative?
a. Sell "as is," P125,000.
0
b. Clean and ship to outlet center, P23,000.
c. Clean and ship to outlet center, P57,000.
d. Neither alternative is desirable, as both produce a loss for the
firm.

37. Naval Corporation has P200,000 of joint processing costs and is studying
=
whether to process J and K beyond the split-off point. Information about J
and K follows.
Product J Product K
Tons produced 25,000 15,000
Separable variable processing costs beyond split-off P64,000 P100,000
Selling price per ton at split-off 15 52
Selling price per ton after additional processing 21 58
K

TSV (FSU -
su @ split-off) ;± % 58
6
-52g

ofum.BY#%fFPC(64k)-
*

-1T¥ (100k)

PIK) 86k to
process sell @
split off
-

further
 MANAGEMENT ADVISORY SERVICES BATCH 91
PREWEEK MATERIAL Page 10 of 25

If Naval desires to maximize total company income, what should the firm do

÷
with regard to Products J and K?

Product J Product K
a. Sell at split-off Sell at split-off
b. Sell at split-off Process beyond split-off
c. Process beyond split-off Sell at split-off
d. Process beyond split-off Process beyond split-off

Items 38 and 39 are based on the following information:

FS ANALYSIS
The following information is available for Kacandida, Inc.:

Balance Sheet
Current assets P 500,000
Property, plant, & equipment 4,000,000
Total assets P4,500,000

Current liabilities P 30,000 2530k

Long-term debt 2,500,000
>
Common stock 200,000 1970k
Retained earnings 1,770,000 >
P4,500,000
-
after tax
Cost of debt before tax 7%

:÷÷÷¥÷
Cost of equity 12%
Tax rate 25%
- CL : not included
38. -average cost of capital?
a. 9.50% c. 8.22% "" "" ""

39.
b. 8.75% d. 6.10% SHE

-to-equity ratio?
1497,0%44-072%111206=5.28861 W.AM -
COST OF CAP .
8.22486

a. 1.28 c. 1.20
.at#wy-.%Ffh---
Debt -

Equity 1.28
b. 0.56 d. 2.10 Ratio

40. Al Pines is studying whether to outsource its Human Resources (H/R)

.

activities. Salaried professionals who earn P390,000 would be terminated; in

contrast, administrative assistants who earn P120,000 wouldRRElE-
AVOID -
'

be transferred
.

elsewhere in the organization. Miscellaneous departmental overhead (e.g.,

-N-:÷_
supplies, copy charges, overnight delivery) is expected to decrease by
Avoid . : R P30,000, and P25,000 of corporate overhead, previously allocated to Human
-

Resources, would be picked up by other departments. If Al Pines can secure

needed H/R services locally for P410,000, how much would the company
benefit by outsourcing?
a. P10,000. c. P130,000.
b. P35,000. d. P155,000.
AVOIDABLE costs
salary Prof 393%1
-
.

420k
Misc .

OUTSOURCING BENEFIT
TRANSFER MANAGEMENT ADVISORY SERVICES BATCH 91
PREWEEK MATERIAL Page 11 of 25
PRICING
35-750
Tp = 41. A company has two divisions, A and B; each are operated as a profit center.
-
A charges0
-

→
b B P35 per unit for each unit transferred to B. Other data follow:
a- -

30 outside = 40
var .

PP
P30
cost
A's fixed costs 112 P10,000
IDLE or WITHOUT
A's annual sales to B 5,000 units
WITH EXCESS
Exit SS A's annual sales to outsiders 50,000 units
• VC
• VC
+ "stem
A is planning to raise its transfer price to P50 per unit. Division B can

# purchase units at P40 each from outsiders, but doing so would idle A's
facilities now committed to producing units for B. Division A cannot increase
its sales to outsiders. From the perspective of the company as a whole, from
whom should Division B acquire the units, assuming B's market is
-

unaffected?
a. outside vendors
b. Division A, but only at the variable cost per unit
c. Division A, but only until fixed costs are covered, then should purchase
from outside vendors
0d. Division A, in spite of the increased transfer price

42. Pancho Potters manufactures two sizes of ceramic paperweights, regular and
ABC jumbo. The following information applies to their expectations for the
planning period:
cost/
Cost Pool Overhead Costs Activity-cost driver Activity driver
÷÷
=

Materials handling P 45,000 90,000 orders = 0.50

Machine maintenance P300,000 15,000 maintenance 20
hours
Setups P270,000 45,000 setups 6
Inspections P105,000 21,000 inspections 5
Total support costs P720,000

1000
Production Estimates
2000 orders ✗ 0.50
=

Production units:
1000 Mtrs ✗ 20 = 20000 Regular = 8,000,000 units
✗ 6 12000 Jumbo = 16,000,000 units
setups
=
sooo
Machine-hours = 200,000 mh
✗ 5 = to ooo
woo inspect .

Labor-hours = 400,000 dlh

T INDIRECT costs
.

Pancho Potters uses an ABC system and assigns overhead costs based on
the overhead activity information provided above.

During October, Pancho produced 700,000 regular ceramic paperweights

maintenance-hours; 2,000 setups; and 2,000 inspections for the regular

0
costs to the regular product line.
a. P43,000 c. P34,000
b. P25,000 d. None of these answers are
correct.
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43. A company that produces a single product had a net operating income of Ay > Vy

S AY > P85,500 using variable costing and a net operating income of P90,000 using P
4500 :

=_--
E > B absorption costing. Total fixed manufacturing overhead was P150,000, and
production was 100,000 units. Between the beginning and the end of the
Fxctu
1%4=1.50 Thirty
:
.

year, the inventory level:

a. increased by 4,500 units c. increased by 3,000 units
Ay =
Amity .
✗ Fxotllu b. decreased by 4,500 units d. decreased by 3,000 units
4500 =
Amity ✗ 1.50

3000
Amity =
Use the following to answer questions 44-46:

cost structure:

Variable cost Total fixed cost

per propeller for the year
Fx4u
Manufacturing cost P114 P810,000 ÷ 601<=13.50
Selling and administrative P20 P243,000

=
In its first year of operations, Annabelle produced 60,000 propellers but only
_ -

sold 54,000. ••

¥
44. What is the total cost that would be assigned to Annabelle's finished goods
-

=
inventory at the end of the first year of operations under the variable costing
method?
Elo 6000
a. P765,000 c. P804,000

vomts.ie#oooEIcostg-AbS0RPM0NF6
b. P684,000 d. P912,000

45. At what amount will Annabelle report its cost of goods sold for this first year
for external reporting purposes? van -114
.

COS
a. P6,156,000 c. P6,966,000 Fx 13€ sold
.
u

Product cost/u 127.5 ✗ 54000=6885000

b. P6,885,000 d. P8,208,000

46. Which costing method (variable or absorption) will generate a higher net
- _
P > s
operating income in Annabelle's first year of operations and by how much?
-
Ay > vy
-
a. variable by P81,000 -0 c. absorption by P81,000
AY 6000×13-50
b. variable by P108,000 d. absorption by P108,000
=

= 81000

Use the following to answer questions 47 and 48:

The following data pertain to operations at Ambilis Incorporated:

Throughput time 4 hours

waiting time = A < Delivery cycle time 8 hours >
4hm .

before 'n starts

prod
Process time value Adding
-
1 hour
Queue time Non Value Adding 2 hours

hnspection • MOM
VAgptif.fm 41=0.25
THROUGPUT PM "" Queue + MOE =
= or 25%
= +
time time time Time

4 = 1 1- 2 1- ✗

✗ =L
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47. The combined inspection and move time for this operation would be:
a. 4 hours c. 2 hours
b. 1 hour d. cannot be determined from
information provided

48. The manufacturing cycle efficiency (MCE) for this operation would be:
a. 50% c. 25%
b. 75% d. 12%

49. A learning curve of 70% assumes that direct labor costs are reduced by 30%
for each doubling of output. What is the cost of the 8th unit produced as an
approximate percentage of the first unit produced? cumulative cost /u

- a. 34.30% c. 30%
I assumed I :

1×-70 070
b. 70% d. 0.343% 254✗ 0.70×70 0.49
34.3%
248✗
0.49×7-0 0.343 or

50. The Muebles company produces a specialty wood furniture product, and has
the following information available concerning its inventory items:

Orderingtimes
cost Relevant ordering costs per purchase order P300 E0Q=20kX2g✗3O0_✓

- g-qg.gg
= # of ordering
✗ lost order Relevant carrying costs per year: 1414-21
/ =

Required annual return on investment 10% ✗ 32=3.20

_
order

carrying cost
= Average ✗ CC
Required other costs per year P2.80
carrying cost /uᵗ?É
"
Annual demand is 20,000 packages per year. The purchase price per
EOQ
/2 package is P32. 20k
ordering -1414.21×300=4242.65
cost
What are the relevant total costs at the economic order quantity? ,, ,
a. P1,414.21 c. P8,485.28 , , ,

cost
b. P4,242.65 d. P9,000 T . RELEVANT COST

THEORIES

1. During the recessionary phase of a business cycle

a. The purchasing power of money is likely to decline rapidly.
b. The natural rate of unemployment will increase dramatically.
c. Potential national income will exceed actual national income.
d. Actual national income will exceed potential national income.

2. For a given level of tax collections, prices, and interest rates, a decrease in
governmental purchases will result in a(n)
a. Increase in aggregate demand.
b. Increase in aggregate supply.
c. Decrease in aggregate demand.
d. Decrease in aggregate supply.
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3. In national income terms, aggregate demand is the

a. Demand for money by the community in a period of full employment.
b. Total expenditure on capital goods by entrepreneurs during a period of
full employment.
c. Demand that is needed if a c
level and the level of investment is to be raised.
d. Total expenditures on consumer goods and investment, including
government and foreign expenditures, during a given period.

4. Which one of the following would not be included in the calculation of the
gross domestic product (GDP)?
a. Purchase of a new home.
b.
c.
d. Purchase of common stock.

5. An upturn in economic activity is indicated by all of the following, except

a. Increased housing starts.
b. Reduction in the quantity of unemployment claims.
c. Increase in personal travel.
d. Reduction in the amount of luxury purchases.

6. The return paid for the use of borrowed capital is referred to as

a. Cash dividends. c. Interest.
b. Stock dividends. d. Principal payment.

7. Short-term interest rates are

a. Usually lower than long-term rates.
b. Usually higher than long-term rates.
c. Lower than long-term rates during periods of high inflation only.
d. Not significantly related to long-term rates.

8. When a firm finances each asset with a financial instrument of the same
approximate maturity as the life of the asset, it is applying
a. Working capital management.
b. Return maximization.
c. Financial leverage.
d. A hedging approach.

9. All of the following capital budgeting analysis techniques use cash flows as
the primary basis for the calculation except for the
a. Net present value.
b. Payback period.
c. Discounted payback period.
d. Accounting rate of return.
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10. The segmented income statement for a retail company with three product
lines is presented below:
Total Product Product Product
Company Line 1 Line 2 Line 3
Volume (in units) 20,000 28,000 50,000
Sales revenue P2,000,000 P800,000 P700,000 P500,000
Costs and expenses:
Administrative P 180,000 P 60,000 P 60,000 P 60,000
Advertising 240,000 96,000 84,000 60,000
Commissions 40,000 16,000 14,000 10,000
Cost of sales 980,000 360,000 420,000 200,000
Rent 280,000 84,000 140,000 56,000
Salaries 110,000 54,000 32,000 24,000
Total costs and expenses P1,830,000 P670,000 P750,000 P410,000
Operating profit (loss) P170,000 P130,000 P(50,000) P90,000

The company buys the goods in the three product lines directly from

whose salary is included in the administrative expenses. Administrative

expenses are allocated to the three product lines equally because the
administration is spread evenly among the three product lines. Salaries
represent payments to the workers in each product line and therefore are
traceable costs of each product line. Advertising promotes the entire
company rather than the individual product lines. As a result, the advertising
expense is allocated to the three product lines in proportion to the sales
revenue. Commissions are paid to the sales persons in each product line
based on 2% of gross sales. Rent represents the cost of the retail store and
warehouse under a lease agreement with 5 years remaining. The product
lines share the retail and warehouse space, and the rent is allocated to the
three product lines based on the square footage occupied by each of the
product lines. The segmented income statement for this retail company does
not facilitate performance evaluation because it does not distinguish
between controllable and uncontrollable costs.

The only costs and expenses controllable at the product-line level for this
retail company are:
a. Administration, advertising, and rent
b. Commissions, cost of sales, and rent
c. Commissions, cost of sales, and salaries
d. Advertising, cost of sales, and salaries

11. Which of the following expresses the relationship between risk and return?
a. Inverse relationship. c. Negative relationship.
b. Direct relationship. d. No relationship.

12. If an investment project has a profitability index of 1.15, then the

a.
b.
c.
d. Net present value of the project is positive.
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13. Which tool would most likely be used to determine the best course of action
under conditions of uncertainty?
a. Cost-volume-profit analysis.
b. Expected value (EV).
c. Program evaluation and review technique (PERT).
d. Scattergraph method.

14. Which type of economic market structure is characterized by a few large

sellers of a product or service, engaging primarily in nonprice competition?
a. Monopoly. c. Perfect competition.
b. Oligopoly. d. Monopolistic competition.

15. The balanced scorecard generally uses performance measures with four
different perspectives. Which of the following performance measures would
be part of those used for the internal business processes perspective?
a. Cycle time.
b. Employee satisfaction.
c. Hours of training per employee.
d. Customer retention.

16. Alta Manufacturing Co. has had a problem with its product quality. The
company has had a large amount of costs related to product recalls. In
considering cost of quality methodology, if the company wants to reduce
these costs, the most likely place to incur costs would be for
a. Prevention. c. Internal failure.
b. Appraisal. d. External failure.

17. Jayson Co. is considering a project that will use 2,000 square feet of storage
space at one of its facilities to store used equipment. What will determine

a. The net present value of the project.

b. The internal rate of return of the project.
c. The value of the next best use of the space.
d. The depreciation expense on the space.

18. The ABC Company is trying to decide between keeping an existing machine
and replacing it with a new machine. The old machine was purchased just
two years ago for P50,000 and had an expected life of 10 years. It now costs
P1,000 a month for maintenance and repairs due to a mechanical problem.
A new machine is being considered to replace it at a cost of P60,000. The
new machine is more efficient and it will only cost P200 a month for
maintenance and repairs. The new machine has an expected life of 10 years.
In deciding to replace the old machine, which of the following factors,
ignoring income taxes, should ABC not consider?
a. Any estimated salvage value on the old machine.
b. The original cost of the old machine.
c. The estimated useful life of the new machine.
d. The lower maintenance cost on the new machine.
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19. Which of the following statements is correct regarding financial decision

making?
a. Opportunity cost is recorded as a normal business expense.
b. The accounting rate of return considers the time value of money.
c. A strength of the payback method is that it is based on profitability.
d. Capital budgeting is based on predictions of an uncertain future.

20. Which of the following topics is the focus of managerial accounting?

a. Financial statements and other financial reports.
b. Historical cost principles.
c. The needs of creditors.
d. The needs of the organization's internal parties.

21. The primary reason for adopting total quality management is to achieve
a. greater customer satisfaction
b. reduced delivery charges
c. greater employee participation
d. reduced delivery time

22. A company will produce 20,000 units of product A at a unit variable cost of
P7 and a unit selling price of P13. Fixed costs are P40,000. However, the
company will still have 40% idle capacity. The company can use this idle
capacity to produce 6,000 units of a different product B, which it can sell for
P7 per unit. The incremental variable cost of producing a unit of B is P6.
Present fixed costs that will be allocated to B amount to P10,000. To decide
whether to produce B, the company should use
a. Markov chain analysis c. Information economics
b. Differential cost analysis d. Regression analysis

23. When the number of units manufactured increases, the most significant
change in average unit cost will be reflected as
a. an increase in the semivariable element
b. an increase in the no variable element
c. a decrease in the variable element
d. a decrease in the no variable element

24. The IMA Statement of Ethical Professional Practice includes an integrity

standard, which requires an IMA member to
a. refuse gifts from anyone.
b. disclose confidential information when authorized by his/her firm or
required under the law.
c. report any relevant information that could influence users of financial
statements.
d. identify and make known anything that may hinder his/her judgment
or prevent satisfactory completion of any duties.

25. Jay Manufacturing Co. prepares income statements using both standard
absorption and variable costing methods. For Year 2, unit standard costs
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were unchanged from Year 1. In Year 2, the only beginning and ending

absorption costing compare with those using variable costing?

Current Ratio Return on Equity

a. Greater Smaller
b. Greater Same
c. Same Smaller
d. Same Same

26.

accounting methods would be most likely to produce the favorable income

results?
a. Standard direct costing c. Direct costing
b. Variable costing d. Absorption costing

27. When standard costs are used in a process costing system, how, if at all, are
equivalent units of production (EUP) involved or used in the cost report at
standard?
a. The standard equivalent units are multiplied by the actual cost per unit.
b. The actual equivalent units are multiplied by the standard cost per unit.
c. Equivalent units are computed using a special approach.
d. Equivalent units are not used.

28. Which of one of the following variances is of least significance from a

behavioral control perspective?
a.
decision midway through the fiscal year to reduce its budgeted
output by 20%.
b. Favorable materials price variance obtained by purchasing raw
materials from a new vendor.
c. Unfavorable labor efficiency variance amounting to 10% more than
the budgeted hours for the output attained.
d. Unfavorable materials quantity variance amounting to 20% of the
quantity allowed for the output attained.

29. Using the balanced scorecard approach, an organization evaluates

managerial performance based on
a. multiple financial measures only
b. multiple nonfinancial measures only
c. multiple financial and nonfinancial measures
d. a single ultimate measure of operating results, such as residual
income

30. A company has two divisions, A and B, each operated as a profit center. A
charges B P35 per unit for each unit transferred to B. Other data follow:
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P30
10,000
- units 5,000
units 50,000

A is planning to raise its transfer price to P50 per unit. Division B can

facilities now committed to producing units for B. Division A cannot increase

its sales to outsiders. From the perspective of the company as a whole, from
whom should Division B acquire
unaffected?
a. Division A, despite the increased transfer price.
b. Division A, but only until after fixed costs covered, then from outside
vendors.
c. Outside vendors
d. Division A, but only at the variable cost per unit.

31. The following information is available for Ports Company for its past two
fiscal years:
Year 1 Year 2
Statistical process control P 70,000 P 100,000
Quality audits 35,000 50,000
Training 40,000 80,000
Inspection and testing 100,000 150,000
Rework 90,000 50,000
Spoilage 80,000 55,000
Warranties 180,000 80,000
Estimated customer losses 800,000 450,000
Net sales 3,000,000 3,200,000

In its cost of quality report for Year 2, Ports will disclose that the ratio of
a. conformance costs to net sales equaled 8.17% in Year 2.
b. nonconformance costs to net sales equaled 19.84% in Year 1
c. nonconformance costs to total quality costs increased from 62.56%
in Year 1 to 82.44% in Year 2.
d. Conformance costs to total quality costs increased from 17.56% in
Year 1 to 37.44% in Year 2.

32. All of the following are ways that companies in developed countries generally
may compete with companies in developing countries except
a. Technology. c. Quality.
b. Customer service. d. Low-cost resources.

33. Bell Co. changed from a traditional manufacturing philosophy to a just-in-

inventory turnover and inventory as a percentage of total assets reported on

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Inventory turnover Inventory percentage

a. Decrease Decrease
b. Decrease Increase
c. Increase Decrease
d. Increase Increase

34. Which of the following events would decrease the internal rate of return of
a proposed asset purchase?
a. Decrease tax credits on the asset.
b. Decrease related working capital requirements.
c. Shorten the payback period.
d. Use accelerated, instead of straight-line depreciation.

35. Management accounting:

a. focuses on estimating future revenues, costs, and other measures to
forecast activities and their results
b. provides information about the company as a whole
c. reports information that has occurred in the past that is verifiable and
reliable
d. provides information that is generally available only on a quarterly or
annual basis

36. The terms direct costs and indirect costs are commonly used in accounting.
A particular cost might be considered a direct cost of a manufacturing
department but an indirect cost of the product produced in the
manufacturing department. Classifying the cost as either direct or indirect
depends upon
a. Whether an expenditure is unavoidable because it cannot be changed
regardless of any action taken.
b. The cost object to which the cost is being related.
c. Whether the cost is expensed in the period in which it is incurred.
d. The behavior of the cost in response to volume changes.

37. Costs are allocated to cost objects in many ways and for many reasons.
Which one of the following is purpose of cost allocation?
a. Aiding in variable costing for internal reporting.
b. Budgeting cash and controlling expenditures.
c. Measuring income and assets for external reporting.
d. Evaluating revenue center performance.

38. Which of the following is correct regarding a relevant range?

a. The relevant range cannot be changed after being established.
b. Actual fixed costs usually fall outside the relevant range.
c. Total fixed cost will not change.
d. Total variable costs will not change.

39. An imputed cost is

a. a cost that continues to be incurred even though there is no activity.
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b. a cost that does not entail any peso outlay but is relevant to the
decision-making process.
c. a cost that cannot be avoided because it has already been incurred.
d. the difference in total costs that results from selecting one alternative
instead of another.

40. An accounting system that collects financial and operating data on the basis
of the underlying nature and extent of the cost drivers is
a. Variable costing c. Activity-based costing
b. Cycle-time costing d. Direct costing

41. A difference between standard costs used for cost control and budgeted
costs
a. cannot exist because they should be the same amounts.
b. can exist because budgeted costs are historical costs, whereas
standard costs are based on engineering studies.
c. can exist because standard costs represent what costs should have
been, whereas budgeted costs represent expected actual costs.
d. can exist because standard costs must be determined after the
budget is completed.

42. A standard costing system is most often used by a firm in conjunction with
a. flexible budgets
b. participative management programs
c. target (hurdle) rates of return
d. management by objectives

43. The use of activity-based costing (ABC) normally results in

a. equalizing set-up costs for all product lines.
b. decreased set-up costs being charged to low volume products.
c. substantially lower unit costs for low-volume products than is
reported by traditional product costing.
d. substantially greater unit costs for low-volume products than is
reported by traditional product costing.

44. As a business owner you have determined that the demand for your product
is inelastic. Based upon this assessment, you understand that
a. Increasing the price of your product will increase total revenue.
b. Decreasing the price of your product will increase total revenue.
c. Increasing the price of your product will have no effect on total
revenue.
d. Increasing the price of your product will increase competition.

45. In macroeconomic terms, aggregate demand is the

a. Demand for money by the community in a period of full employment.
b. Total expenditure on capital goods by entrepreneurs during a period
of full employment.
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c.
optimum level and the level of investment is to be raised.
d. Total expenditures on consumer goods and investment, including
government and foreign expenditures, during a given period.

46. In a decentralized company in which divisions may buy goods from one
another, the transfer pricing system should be designed primarily to
a. increase the consolidated value of inventory.
b. allow division managers to buy from outsiders.
c. minimize the degree of autonomy of division managers.
d. aid in the appraisal and motivation of managerial performance.

47. A management decision may be beneficial for a given profit center, but not
for the entire company. From the overall company viewpoint, this decision
would lead to
a. goal congruence c. suboptimization
b. centralization d. maximization

48. Which of the following is an advantage of equity financing in comparison to

debt financing?
a. Issuance costs are greater than for debt.
b. Ownership is given up with respect to the issuance of common stock.
c. Dividends are not tax deductible by the corporation whereas interest
is tax deductible.
d. The company has no firm obligation to pay dividends to common
shareholders.

49. The term cost driver refers to

a. any activity that can be used to predict cost changes.
b. the attempt to control expenditures at a reasonable level.
c. the person who gathers and transfers cost data to the management
accountant.
d. any activity that causes costs to be incurred.

50. Of the following, which is the best reason for using activity-based costing?
a. to keep better track of overhead costs
b. to more accurately assign overhead costs to cost pools so that these
costs are better controlled
c. to better assign overhead costs to products
d. to assign indirect service overhead costs to direct overhead cost
pools

51. The budgeting technique that focuses on different phases of a product such
as planning and concept design, testing, manufacturing, and distribution and
customer service is known as:
a. integrative budgeting. c. comprehensive budgeting.
b. base budgeting. d. life-cycle budgeting.
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52. Which of the following statements represents a similarity between financial

and managerial accounting?
a. Both are useful in providing information for external users.
b. Both are governed by GAAP.
c. Both rely heavily on published financial statements.
d. Both draw upon da

53. Leo Corporation will evaluate a potential investment in an advanced

manufacturing system by use of the net-present-value (NPV) method. Which
of the following system benefits is least likely to be omitted from the NPV
analysis?
a. Savings in operating costs.
b. Greater flexibility in the production process.
c. Improved product quality.
d. Shorter manufacturing cycle time.

54. A company produces and sells bottled fruit juices. The processes involved
in producing the product are done in the following departments:

Department Capacity per week

Juice extraction 8,000 bottles
Mixing 5,000 bottles
Bottling 10,000 bottles

If the company wants to improve its contribution margin and applies the
Theory of Constraints, improvement efforts should be focused on
a. juice extraction department. c. bottling department.
b. mixing department. d. sales department.

55. It describes how an organization matches its own capabilities with the
opportunities in the marketplace to accomplish its overall objectives.
a. Planning c. Learning and growth perspective
b. Strategy d. Customer perspective

56. Which of the following statement(s) is(are) true?

1. MAS relates to the future.
2. MAS covers a wider area than the usual audit and tax work.
3. Because of the broad scope covered by MAS, a wider variety of
assignments are usually encountered.
4. MAS engagements require highly qualified staff.

a. All the statements are true.

b. Only three statements are true.
c. Only two statements are true.
d. Only one statement is true.
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57.
a. Percentage of profit on sales divided by the capital employed
turnover rate.
b. Percentage of profit on sales multiplied by the capital employed
turnover rate.
c. Investment capital divided by the capital employed turnover rate.
d. Investment capital multiplied by the capital employed turnover rate.

58. Management accounting and cost accounting

a. are required for recordkeeping as are financial accounting and tax
accounting.
b. provide cost information about products and services, as well as
information for internal decision making.
c. require an entirely separate group of accounts than financial
accounting.
d. focus solely on the determination of costs to produce a product or
provide a service.

59. Which of the following is a sign that an ABC system may be useful?
a. There are small amounts of indirect costs.
b. Products make diverse demands on resources because of differences
in volume, process steps, batch size, or complexity.
c. Products a company is less suited to produce and sell show small
profits.
d. Operations staff agrees with accountants about the costs of
manufacturing and marketing products and services.

60. Systematic evaluation of the trade-offs between product functionality and

product cost while still satisfying customer needs is the definition of
a. Activity-based management.
b. Theory of constraints.
c. Total quality management.
d. Value engineering.
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PROBLEMS:

1. C 11. C 21. A 31. B 41. D

2. A 12. B 22. B 32. B 42. A

3. D 13. B 23. A 33. C 43. C

4. C 14. A 24. B 34. B 44. B

5. B 15. A 25. B 35. B 45. B

6. B 16. C 26. D 36. B 46. C

7. A 17. D 27. B 37. C 47. B

8. C 18. C 28. A 38. C 48. C

9. C 19. B 29. A 39. A 49. A
10. A 20. B 30. D 40. A 50. C

THEORIES:

1. C 16. A 31. D 46. D

2. C 17. C 32. D 47. C

3. D 18. B 33. C 48. D

4. D 19. D 34. A 49. D

5. D 20. D 35. A 50. C
6. C 21. A 36. B 51. D

7. A 22. B 37. C 52. D

8. D 23. D 38. C 53. A

9. D 24. D 39. B 54. B

10. C 25. A 40. C 55. B

11. B 26. D 41. C 56. A

12. D 27. B 42. A 57. B

13. B 28. A 43. D 58. B

14. B 29. C 44. A 59. B

15. A 30. A 45. D 60. D

- end -